The Old Tax Rules No Longer Apply

A report from the Detroit Free Press. “The big tax question of the year: Will you get a super-sized refund or suddenly discover that you’re going to end up writing one monster check? Taxpayers are getting their first look at how the new tax overhaul hits their pocketbooks when they file their 2018 federal income tax returns. The devil involving those deductions, such as those for property taxes and state income taxes, is in the details.”

“A Novi homeowner told me he was shocked when he was smacked with having to write a big check to pay his tax bill after he completed his 2018 tax return. He owes more than $3,000 when typically he received roughly a $4,000 refund in the past.”

“The couple in their 50s both have jobs and receive W-2s to report their wages. They pay about $9,000 in state income taxes and another $10,000 or so for property taxes on their Novi condo. Their children are older and don’t qualify for any child tax credit.”

“The homeowner told me that he understood there was a $10,000 limit on how much one could deduct for property taxes on the federal return, after the major tax overhaul. What he didn’t know: The $10,000 cap includes much more than property taxes. The limit also impacts how much the couple can deduct when it came to what they paid for state income taxes. Together, what would have been more than a $19,000 deduction was limited to $10,000.”

“Many homeowners who itemize need to dig a little deeper into what’s known as the new SALT tax cap — the state and local tax deduction. The limit covers how much you can deduct when it comes to property taxes, state and local income taxes, and sales tax, even license plates on cars in some states, such as Michigan, said Leon LaBrecque, chief growth officer for Sequoia Financial Group in Troy.”

“‘I’m a good example,’ LaBrecque said. ‘I pay a lot of Michigan income taxes, plus property taxes on two houses, plus license plates.’ Add all those taxes up, including the real estate taxes paid on his cottage, and he’s well over the new $10,000 limit for deductions.”

“Where people can run up against this limit: A larger property tax bill; a higher-income household; double-income W-2; multiple homes, like a cottage, LaBrecque said. For example, a Michigan couple making $150,000 in income would pay around $6,500 in Michigan state income taxes. A home with a value of $165,500 might involve property taxes of $2,500 or higher in Michigan. And then state license tabs on a couple of cars (listed on Schedule A for those who itemize as ‘personal property taxes’) could be $300 or $350.”

“We heard much about how some taxpayers would be hard hit by the cap in high-property tax states, such as New York, New Jersey and Connecticut. But residents in Michigan are getting hit too, for various reasons.”

“‘The vast majority of my clients are getting clipped due to the SALT ceiling,’ said George W. Smith, a certified public accountant with his own firm in Southfield. The ones getting hit often have higher earnings and possibly a second home, such as a cottage or a vacation home, he said.”

“One client has a vacation home on the Chesapeake Bay along the East Coast and will lose about $20,000 in state and local tax deductions. She is single and will pay about $4,800 in income taxes.”

“The impact on the bottom line of the tax return, though, depends on whether they might no longer need to itemize because they can take advantage of the new standard deduction of $12,000 for singles and $24,000 for married couples filing a joint return. ‘Some are benefiting from that regardless of the SALT cap,’ Smith said.”

“Since the old tax rules no longer apply, your tax bill — and your tax refund — may not look anything close to what it did last year. Most households will see some tax cuts, thanks to a lower tax rates and a higher standard deduction, which is nearly double what was used for 2017 tax returns.”

“Nearly 65 percent of tax filers will see a tax cut overall and pay less for their 2018 individual income taxes than in the past under the old rules. The average tax savings would be about $2,180 for that group, according to the nonpartisan Tax Policy Center in Washington, D.C About 6 percent are expected to pay more. The average tax increase would be $2,760. And 29 percent would see no change.”

The Wall Street Journal. “Northeast states governed by Democrats are blaming recent revenue shortfalls on the 2017 federal tax law and its changes to the deductibility of state and local taxes. New York Gov. Andrew Cuomo and New Jersey Gov. Phil Murphy have both regularly attacked the provision of the tax overhaul that capped the deductibility of state and local taxes, or SALT, at $10,000.”

“In high-cost areas like New York City and suburbs throughout the tri-state region, state income and local property taxes regularly exceed the cap and can no longer be fully deducted. During a Monday press conference, Mr. Cuomo said wealthy individuals living in these areas were either moving or shifting their official residence to lower-tax states, causing the shortfall.”

“‘SALT was an economic civil war,’ Mr. Cuomo said. ‘It literally restructured the economy to help red states at the cost of blue states. That’s exactly what it did. It was a diabolical, political maneuver.'”

‘A Novi homeowner told me he was shocked when he was smacked with having to write a big check to pay his tax bill after he completed his 2018 tax return. He owes more than $3,000 when typically he received roughly a $4,000 refund in the past’

So you ain’t getting a big fat check and are having to write one instead? Maybe stamping your little feet will help? We’ve been subsidizing these second shack owners for too long.

People have asked me in the past when they will see a significant drop in housing (both in demand and prices) and I said “February 2019 when people start doing their taxes and realize they are screwed”. Only 50 percent of adult Americans have a $1,000 in their savings account and now they OWE instead of pocketing a sweet refund? Let’s see how this plays out!

Something tells me these MID sob stories will keep you busy for a few months Ben.

I’ve come out ahead this year federal tax-wise compared to if this year’s changes were not made, so I’m quite happy about that. But some of my bigger housed neighbors are probably cursing Trump’s name over it right now.

Now I also set aside 40% of everything that comes in for my estimated taxes and do a preliminary return before the final estimated tax payment on Jan 15th, so I usually don’t get any “surprises” anyway.

25 years ago, I worked for a company that made Tax return software for CPAs (they were later bought by Intuit) – that experience was very, very educational, and taught me to actively look out every year for tax law changes that would impact me.

I think what I was trying to get at was that 1) Tax Rules change every single year and 2) most people just want it to be magically “taken care of” and 3) see a tax refund as some sort of unearned bonus. (i.e. tax sheeple syndrome)

We have two homes, but still come in under the $10K limit. One is in FL, the other in a lower tax area of upstate NY. FL has no income tax, and even though we still claim NY as residence and file NY state income tax return, our state liability is zero because little is left after NY social security and pension exemptions.

Nevertheless, I concur wholeheartedly with the commenter’s animosity toward “second shack owners”–which is why I paid off that mortgage as soon as possible. However, second home owners should know that they can offset the impact of the SALT deductibility limitation by offering their homes as vacation rentals. This way any property taxes can be partially claimed as rental expenses on Schedule E once rental and personal use time are prorated.

‘SALT was an economic civil war,’ Mr. Cuomo said. ‘It literally restructured the economy to help red states at the cost of blue states. That’s exactly what it did. It was a diabolical, political maneuver.’

“‘SALT was an economic civil war,’ Mr. Cuomo said. ‘It literally restructured the economy to help red states at the cost of blue states. That’s exactly what it did. It was a diabolical, political maneuver.’”

That statement makes a really big assumption that the previous structure was fair to everyone.

According to the article above 65% will get more money.
The ones getting in are the ones with MULTIPLE HOMES.
I predict a lot of selling in the Carolina vacation areas, since a lot of that cost in now not deductible.
Selling not here yet as least in my areas Isn’t this what we want. Rich people pay more and people with MULTIPLE HOUSES pay more??

That Western North Carolina bubble is a real stinker. One huge zit that desperately needs a poppin’. Of course, much like parts of Florida, people still want in. We were this close to moving there, and then the local boards exploded with tales of incredible congestion, and ire from long time locals being driven out of the area due to cost of living skyrocketing.

A little. I’ve watched the lemming-like behavior of folks re-locating from the Northeast and Mid-West to Florida. They just don’t give two doodies in a bucket. They’d camp out on an island in the midst of a red tide zone and call it heaven.

Lol, things are getting a bit tense here in paradise between long time residents and re-locating lemmings. I expect to see “Yankee Go Home” signs any day now. Might post a couple of them myself.

A fellow digital soldier in the wild. Hi there!
You share whatever info you can without sounding like a loony. Watching this right now:
Testing Complete! China’s System Coming Here! w/ Patrick Wood (1of2)youtube.com/watch?v=a6myDdZBB90.
Got to cut back, I’m making myself nuts.

Right now, because I was curious about old HS classmates (I recently realized found that I was a high school classmate of a wife of a SC justice who adopted some kids, did not know her well), I looked up (on the web site mylife.com) another girl who was the only one to get a perfect SAT score and whose plans at the time were to get married and have kids. Bitchily, I wanted to see if she was still married, even though I’ve since realized she was probably right – the feminist movement did as much harm as good.

I found out my reputation score (!) is 3.98 out of 5. Since I’ve never been arrested, haven’t gotten a ticket since I left NYC 13 years ago, why the 20% ding? This stuff makes me ill.

It’s amazing to think that 1) these tax changes, and 2) the money-laundering investigation into Miami/NYC RE, are the only two measures the US has taken in years to pop the dangerous and out-of-control housing bubble on a national level.

I was thankful to have found taxplancalculator.com during the legislation. The calculator enabled a user, based on the user’s information, to see the pre-existing (then current) tax system alongside the House and Senate plans.

I receive alerts for property changes in a few markets including St. Petersburg, FL. Every one that I see is a “Price Reduced” or “Back on Market”. The numbers have been increasing and this is the low end.

As soon as I retired from 35 years of apartment construction, we sold our suburban FtW home and moved 40 miles west to a small town. $80k cash for a fairly new mobile home on 4 tree filled acres. Fenced with outbuildings.
My SS check $19k) and my science teacher’s wife’s income ($32k) keeps us in the “po folks” category. No Texas income tax. (Freaking teachers group health insurance costs us $1000/month and we NEVER use it).
It’s not too bad being trailer trash.!!
Expecting some decent refund bucks this year.